Best City for Startups: Joburg vs. Cape Town

Data from the latest Global Startup Ecosystem Report 2022 shows what cities need to compete in the race for leadership as start-up and investment destinations.

The results show that Silicon Valley is the leading global startup ecosystem, followed by New York and London in second place.

North America continues to dominate the global rankings, with 47% of the top 30 ecosystems in the region.

GSER is the world’s most comprehensive data-driven startup survey with over 280 entrepreneurial innovation ecosystems and 3 million startups analyzed. The report includes a ranking of the top 140 ecosystems and is published by innovation policy advisory and research firm Startup Genome and the Global Entrepreneur Network (GEN).

“Today, the digital economy is the economy, or at least the future of the economy,” the authors of the report note.

The World Economic Forum estimates that 70% of new value created worldwide over the next 10 years will be based on digital business models. According to Statista, in 2023, for the first time, more than half of GDP will come from the “digital transformation” of businesses.

By 2030, AI-only PWC projects will contribute $15.7 trillion to the global economy.

Despite the early shadow it cast on startups, Startup Genome said Covid-19 ended up boosting the sector by accelerating digitalization. Since the pandemic, tech companies have grown 2.3 times more than their non-tech counterparts.

While about 90% of startups fail completely, the Startup Genome study shows that only 1.5% of startups — or about 15% of the survivors — generate successful exits of $50 million or more in the top eight US startup ecosystems.

Since 2012, the average amount of Series A rounds worldwide has tripled to over $18 million. Post-cash valuations have risen by an average of 239% over 10 years, with the largest increases coming in later rounds.

Deep Technologies

As for the main innovation trends, growing numbers speak for them: Web3, Industry 5.0, Supply Chain 4.0. And, of course, 5G. Innovations in digital finance, AI-discovered molecules and climate change mitigation are not only changing business, but also the social and physical worlds.

Talent

And just as Silicon Valley reinvented the culture of place two decades ago with open offices and spaces optimized for collaboration, today’s startups are leading our new culture of placelessness, Startup Genome said.

During the Covid-19 pandemic, tech companies have simplified and introduced new ways of working, including the virtual model popularized by companies like Dropbox that makes remote work the default. Investments are also no longer tied to location: some VCs are using Zoom to conduct due diligence on vast investments, expanding their reach geographically.”

However, by making talent and capital more fluid, the report’s authors say technology has, paradoxically, made geography more important than ever. “Now that founders, talent and investors can be anywhere, polar stars like Silicon Valley, London and Beijing must compete with hundreds of expanding constellations, each with its own legal, economic and life-force advantages.”

India rises

The report shows that the startup market has changed significantly, with India lagging behind the US and China. The country has seen a rapid increase in the number of large exits and early stage rounds, as well as a significant increase in the value of the ecosystem. India minted 44 unicorns in 2021 and raised a total of $72 billion (up from $1.8 billion in 2020).

hot spots everywhere

India and China may be the main events of 2021, but dozens of other intriguing stories have spread around the world, according to Startup Genome. Continuing the downward trend in funding share that began in 2016, in 2021 North America accounted for less than half of early-stage funding, with Europe and Asia accounting for a fraction of the total.

Venture capital activity in Latin America almost doubled from the previous year.

A record 540 companies have achieved unicorn status in 2021, with 113 ecosystems producing at least one giant worth over a billion dollars. Twenty-two ecosystems, including Brisbane, Luxembourg, Santiago Valparaiso and Ho Chi Minh City, reached their first unicorns during the period studied for GSER.

GSER 2022 ranks startup ecosystems on seven success factors, including performance and talent, with South Africa highlighting Cape Town and Johannesburg.

Cape Town Highlights

Startup Genome says the Cape Town startup scene is worth $2.8 billion.

Cape Town’s 450 tech firms, ranging from giants like Takealot and Amazon to early-stage companies, employ more than 40,000 people in total. And more businesses are moving into the South African ecosystem. According to an fDi Intelligence report, Cape Town is one of the fastest growing regions in the world in terms of foreign investment.

  • Knife Fund III is a new fund managed by Cape Town-based venture capital firm Knife Capital. The fund invests in high growth sectors in South Africa with great potential for expansion in Africa and internationally.
  • Swiss investment firm Crypto Valley Venture Capital (CV VC) has opened its first African office in Cape Town to invest in African blockchain-focused startups. CV VC and its partners plan to invest in 100 startups over the next four years. The new office will also serve as a hub for the transfer of know-how and experience from the Swiss Crypto Valley to the Cape Town ecosystem.
  • The SuperReturn Africa 2022 private equity and venture capital conference is scheduled to take place in Cape Town in December.
  • Notable recent funding deals include a R7 million ($500,000) raise by Adtech startup Adbot in November 2021 and a $20 million Series A by game publisher Carry1st in January 2022.

Johannesburg Highlights

Startup Genome says Joburg’s startup scene is worth $962 million.

Over 70% of South African companies are based in Johannesburg, home to Africa’s largest stock exchange, and the city generates 15% of South Africa’s wealth. Johannesburg is using its position as the nation’s financial capital to create a startup ecosystem that can compete with the better-known Cape Town.

  • Ericsson South Africa, the local arm of the Swedish telecommunications company, has opened an office in the fast-growing Waterfall residential complex in Johannesburg as the area attracts increasing interest from tech firms.
  • Vantage Data Centers, a US-headquartered data center specialist, announced in 2021 that it plans to build what it claims will be the largest data center campus in Africa in Johannesburg.
  • A host of startup support organizations support the emerging startup community, including the Seed Academy and the WDB Growth Fund accelerator for women, the J&B Hive Accelerator for creative entrepreneurs, and a range of coworking and creative spaces such as Workshop17 West Street and JosyHub. 22 ON SLOANE is the largest startup campus in Africa.
  • Johannesburg is also home to many active investors, including the Dazzle Angels, Edge Growth, Grovest, SA SME Fund, People’s Fund and Kalon Venture Partners.

Online payment solution provider Ozow raised $48M in Series B in November 2021.


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